Topic – How to Address the Lack of Financial Literacy of Filipinos?

Joseph Paul Tadeo Verdan – 11671262

Topic – How to address the lack of financial literacy of Filipinos?

"Wealth does not necessarily mean having millions and millions of pesos. Being wealthy simply means having the financial resources to support your chosen lifestyle. Wealth is nothing more than having money to fund your particular needs at any given time." This was a famous quote from the book “Wealth Within Your Reach: Pera Mo, Palaguin Mo! by renowned financial expert Francisco Colayco. This is supports the concept of financial freedom by Kim Kiyosaki (author of Rich Dad Poor Dad) that having lots of money is no assurance that one can be considered wealthy but having more control over your finances. However, financial freedom can only be achieved by being equipped with the right amount of financial knowledge and information. Individuals will not be able to choose the right savings or investments for themselves, and may be at risk of fraud, if they are not financially literate. Therefore, Financial literacy is integral in allowing Filipinos to provide for themselves and their families as well as invest in the future.

According to the World Bank, financial literacy encompasses “concepts ranging from financial awareness and knowledge, including financial products, institutions, and concepts, financial skills, such as the ability to calculate compound interest payments, and financial capability more generally in terms of money management and financial planning. In practice, however, these notions frequently overlap. It empowers individuals with the capability to navigate a complex array of financial products and to make sound financial decisions.” Furthermore, the World Bank emphasizes on financial literacy and the need for financial planning with the recent financial crisis last 2008 and the shift of retirement planning from public sector to individuals. This need is very much applicable to the Philippines with the Bangko Sentral ng Pilipinas (BSP) as well other government agencies and major financial services in the country started their own financial literacy initiatives.

The 2014 Global Financial Literacy Survey by Standard & Poor discovered that the Philippines ranked in the bottom 30 of 144 countries surveyed. In line with this, only 25 percent of Filipinos were considered financially literate while 66% of the world population are considered financially illiterate. This essentially means around 75 million Filipinos have no idea of basic financial terminologies of inflation, risk diversification, insurance, compound interest as well as having a savings account. In a separate survey conducted by Mastercard last 2016, the Philippines’ financial literacy index score and ranking continues to decline with a score of 62 out of a possible 100 which is less than the average region scores of 66. The results of the surveys highlight areas of concern in terms of improving financial knowledge, understanding financial concepts as well as financial planning.  

The way in which a person behaves will have a significant impact on their financial well-being. According to the 2014 Consumer Finance Survey done by Bangko Sentral ng Pilipinas (BSP) 51.5% of Filipino households spent as much as their income, 43.8% spent more than their income and only 4.6% spent less than their income. This was then supported by the World Bank Survey entitled “Enhancing Financial Capability and Inclusion in the Philippines” states that 23 million Filipinos acknowledge that their household run out of money for necessities. 94% of these households reported that they use credit cards to cover their expenses. Results further revealed that 59% budget on how they spend they will earn with 57% have money left in their bank accounts after expenses. The real problem lies is having the discipline to implement their financial goals. Filipinos are often clueless about the state of their money. Their preoccupation about other matters exacerbated by the lack of financial literacy put them at risk of financial struggles and not being able to be ready for the future. This impact planning in relation to retirement, health and hospitalization as well as education for children. According to the Sun Life Solar FLARE (Financial Literacy Advocacy Report) study, only 2 out of 100 Filipino retirees are financially independent, 45 are still dependent on their relatives, 30 percent rely on government through pensions (P 8,000 average monthly) and 22 continues to work.  In the same study, out of 100 who get sick, 95% sacrifice their savings while 53% borrow from family members or relatives. Lastly, the rise of tuition fees has been a burden for Filipino households with annual increases of 12%. Ordinary Filipino households often are simply saving for necessities but are not prepared on unexpected expenses and long-term outlook.

The Asian Development Bank Institute argues the case of promoting financial education and argues the benefit of investing in financial education is substantial in addressing financial illiteracy. The Department of Finance also acknowledged that financial education is the most important part of the Philippines financial inclusion policy. Financial inclusion or inclusive financial system is defined as “a state wherein there is effective access to a wide range of financial products and services by all.” Financial Literacy is an opportunity and a never-ending responsibility by the government.